IRS Offers Guidance on Vehicle Expenses

In the wake of the most extensive tax reform in decades, the IRS has issued an advisory about the new law’s impact on deductions for vehicle expenses related to a move, employee expenses that are not reimbursed and vehicle expensing.

Deductions for Move-Related Vehicle Expenses

The new law, known as the Tax Cuts and Jobs Act (TCJA), does not allow deductions for moving expenses through Jan. 1, 2026. It took effect for tax years beginning after Dec. 31, 2017. This means that tax preparers and taxpayers should disregard the mileage rate for a move listed in Notice 2018-03. However, members of the military who are on active duty and must move to comply with a relocation order are exempt.

Deductions for Unreimbursed Employee Expenses

The TCJA does not allow miscellaneous itemized deductions subject to the 2 percent of adjusted gross income floor. This includes employee expenses such as uniforms, union dues and business-related meals, entertainment and travel.

So, the business standard mileage rate in Notice 2018-03 can’t be used for itemized deductions for unreimbursed employee travel expenses for that 2018 to 2026 period mentioned above. The IRS has issued Notice 2018-42, aka Update of Standard Mileage Rates, for guidance.

Vehicle Expensing

Standard mileage rates in Notice 2018-03 do remain in effect for the use of a car, van, pickup or panel truck in 2018.

Those rates are:

54.5 cents per mile of business travel (a 1-cent increase from 2017), based on an annual study of the fixed and variable costs of vehicle operation. Taxpayers can’t use the business standard mileage rate after using any depreciation method under the Modified Accelerated Cost Recovery System or after claiming a Section 179 deduction for that vehicle. The business standard mileage rate also can’t be applied for more than four vehicles used simultaneously.

18 cents per mile for medical purposes (a 1-cent increase from 2017), based on variable costs.

14 cents per mile for serving charitable organizations (unchanged).

Taxpayers have the option of figuring actual costs of vehicle use rather than using the standard mileage rates. The IRS also advises that the TCJA increases the depreciation limits for passenger cars put in service after Dec. 31, 2017 for purposes of computing the allowance under a fixed and variable rate plan.

The maximum standard cost can’t exceed $50,000 for passenger cars, trucks and vans put in service after Dec. 31, 2017. The previous maximum standard cost was $27,300 for passenger cars and $31,000 for trucks and vans.

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Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.